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This paper explores financial operations of large listed non‐financial firms in South Africa using an analytically relevant sample of the Johannesburg Stock Exchange (JSE). It argues that there is evidence for the over‐capitalisation [Toporowski 1993, 2000] of these companies. In other words, large listed firms, that are not financial businesses, hold substantial volumes of liquid assets as share of their liabilities. Liquid assets are current or short‐term financial assets, cash and cash equivalents. The latter are likely to be mostly channelled into bank deposits. The paper shows how the liquidity preference of non‐financial listed corporations in a sophisticated banking system1 [Chick 1992] can induce credit expansion, contributing to asset price inflation in the South African housing market.

Contrary to what is typically suggested by conventional economic theory however, banks do not transform household saving into investment credit. Quite the contrary happens: idle but liquid corporate funds facilitate credit extension, especially of consumer credit and mortgage loans, which are the main focus of credit activity for South African banks. Growth in such an economic system is often driven by the expansion of consumption credit. Moreover, expansion in mortgage loans potentially results in house price inflation, exacerbating the dependence of growth on consumption. Households can finance consumption, taking out loans against the value of their property.